Indian Oil Corporation Ltd. vs Iranian Offshore Engineering & ...
2009 Latest Caselaw 3821 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI


                                                 Date of Reserve: July 28, 2009
                                              Date of Order: September 17, 2009

+Arb. Appeal 8/2009
%                                                             17.09.2009
     Indian Oil Corporation Ltd.                        ...Appellant
     Through: Mr. A.M. Singhvi, Sr. Adv. with Mr. Rakesh Sawhney, Ms. Mona
     Aneja and Mr. Munindra Dvivedi, Advocates

       Versus

       Iranian Offshore Engineering &
       Construction Company                        ...Respondent
       Through: Mr. V.P. Singh, Sr. Adv. with Mr. Airi, Mr. Budhiraja and
       Mr.Seshadri, Advocates.


       JUSTICE SHIV NARAYAN DHINGRA

1.     Whether reporters of local papers may be allowed to see the judgment?

2.     To be referred to the reporter or not?

3.     Whether judgment should be reported in Digest?


       JUDGMENT

1. This appeal under Section 37 of the Arbitration & Conciliation Act, 1996

("the Act, for short) has been preferred by the appellant against an order

dated 20th May, 2009 passed by arbitral tribunal whereby it allowed an

application on 15th January, 2009 of Iranian Offshore Engineering &

Construction Company (IOECC), respondent herein, under Section 17 of the

Act and directed that a joint measurement in respect of work undertaken by

contractor after the order of termination, will be in the interest of all

concerned and would assist the Tribunal in arriving at a just conclusion. It

further ordered that the costs incurred on joint measurement shall be shared

by both the parties equally. The joint measurement was ordered to be done

by the National Institute of Oceanography.

Arb. Appeal 8 of 2009 Indian Oil Corporation vs. Iranian Offshore Engineering & Construction Company Page 1 Of 6

2. Needless to say that costs of joint measurement was huge and for this

reason, the applicant/respondent despite earlier moving an application before

the High Court under Section 9 for joint measurement and despite order

passed by this Court allowing the applicant (respondent herein) to carry the

joint measurement, did not carry out the joint measurement and withdrew the

application under Section 9 from this Court and made an application before

the Tribunal for sharing of costs on the ground that the joint measurement

involved huge costs. The relevant paragraph of the application reads as

under:

"k. It is submitted that since the joint inspection and measurement is to be jointly conducted in terms of the Contract with, and in the presence of the representatives of the Claimant and the Respondent and in view of the high costs that are involved in conducting the joint inspection and measurement, such as hiring, purchasing specialized equipment, chartering a diving support vessel, employing divers, amongst other things, it is only fair and in the interests of justice, that the costs of the joint inspection and measurement exercise that is to be conducted by the National Institute of Oceanography be shared equally by the Claimant. In the circumstances, this Application has been filed seeking appropriate orders from this Hon'ble Tribunal directing the Claimant to equally share the costs of the joint measurement and inspection exercise with the Respondent since both the parties agreed to have the joint measurement and inspection exercise conducted by the National Institute of Oceanography."

3. Prior to making this application for sharing the costs, IOECC had not

raised an issue of sharing the costs either before the High Court or before the

Arb. Appeal 8 of 2009 Indian Oil Corporation vs. Iranian Offshore Engineering & Construction Company Page 2 Of 6 Tribunal. Before the High Court also IOECC had only prayed that IOC be

directed to participate in the joint measurement. This Court had allowed joint

measurement and directed IOC to participate in the joint measurement to be

organized by respondent. Initially, before the Tribunal also applications were

made for extension of time. In earlier application, it was stated that IOC

should be directed to agree to a joint inspection and measurement as the

respondent would not be in a position to incur heavy expenses in mobilizing

vessel and other equipments to carry out the inspection and measurement

exercise unless IOC agrees for joint inspection and measurement. The

Tribunal had allowed IOECC's application for enlargement of time to carry the

joint measurement in view of technical nature of work vide order dated 10th

May, 2008. It is only thereafter that IOECC then made this application for

sharing of costs and passing of impugned award by the Tribunal.

4. The Tribunal had gone into the rival arguments in its order as to under

the contract it was whose responsibility to do joint measurement and referred

to different clauses of the contract. The Tribunal came to conclusion that a

combine reading of clauses 7.0.1.03.0 and clause 6.1.1.0 and 6.1.6.0 would

indicate that in case where the owner terminates the contract, he has to

indicate in the notice of termination the reasons for the same and also time

and place for conducting survey and measurement for the work performed

under the contract. Thereafter, the Tribunal observed that a joint

measurement and inspection of the work undertaken by IOECC after the order

of termination would be in the interest of all concerns and would assist the

Tribunal in arriving at a just conclusion. It further observed that sub clause 8

of Section 31 of the Act provides that costs of arbitration shall be fixed by the

Tribunal. Clause 31(a) (iv) contemplates that any other expenses incurred in

Arb. Appeal 8 of 2009 Indian Oil Corporation vs. Iranian Offshore Engineering & Construction Company Page 3 Of 6 connection with the arbitration proceedings shall be the costs of arbitral

proceedings. The Tribunal concluded that the costs incurred in having a joint

measurement would come within the purview of Section 31(a) explanation

(iv). The Tribunal therefore observed that the costs incurred for the purpose

of joint measurement pursuant to the order of Tribunal to be borne equally by

the parties and therefore both should bear the costs.

5. I consider that the Tribunal fell in grave error observing that costs of

measurement of the work has to be considered as costs of arbitral

proceedings. It is not that the Tribunal in this case for the sake of clarification

of a claim of party, irrespective of the stand of parties, wanted to hire an

expert's services for its assistance and the expenses payable to expert may

be considered as costs of arbitral proceedings or that Tribunal wanted to visit

the site and see the site itself and the expenses incurred on account of visit

were being considered as costs of arbitration proceedings. In the present

case, the measurements of the work done is sought by the party as an

evidence in support of its claim. In case the party could prove its claim

without measurement, the party would not ask for of measurement. IOECC

had been all along insisting for measurement only because the measurement

would help IOECC in establishing its claim/ counterclaim before the Arbitral

Tribunal and the measurements are to be used as evidence. It is not the job

of the Tribunal to order for collecting evidence on behalf of a party or to ask

the other party to bear the expenses of collecting of evidence by one party

because the expenditure involved is heavy expenditure. Neither the

expenditure in collection of evidence can be considered as costs of arbitration

proceedings. It may be that a party when succeeds in establishing its claim

may stake a claim of expenditure incurred on collecting evidence also during

Arb. Appeal 8 of 2009 Indian Oil Corporation vs. Iranian Offshore Engineering & Construction Company Page 4 Of 6 arbitral proceedings and make the expenses of collection of evidence by way

of measurement as a part of the expenditure incurred by it. However, the

Tribunal cannot, under law ask a party to bear the expenses incurred by other

party on collection of evidence by way of measurement of the work done,

though it can give directions to IOC to be present at the time of measurement

so that measurement becomes as acceptable evidence and objection, if any,

about the measurement are realistic objections.

6. The reliance of the arbitral tribunal on the provisions of the contract

could have been of no help after termination of the contract. IOC vide its

letter dated 5th April 2007 written to IOECC clearly indicated that it should

immediately return to IOC, all designated sources, owners, materials in its

custody and it also informed IOC that the measurement and survey of the

works performed under the contract upto date will be conducted on 10 th April,

2007. This date of conducting survey was postponed at the request of IOECC

to 16th April, 2007. IOECC vide its letter dated 11th April, 2007 informed that

its representative would be visiting site soon. IOECC however did not join the

measurement and survey of the work done despite postponement of the

date. IOC informed vide letter dated 14th April 2007 that further

postponement of the date would not be possible and its representative should

be available at site to participate in the joint measurement on 16 th April 2007.

IOECC sought further postponement vide its letter dated 15th April, 2007.

However, IOECC did not join IOC in the measurement. It is under these

circumstances that IOECC made application to the High Court for joint

measurement and did not do the same at its own costs. In this Court it was

not stated that IOC will have to share the costs. While seeking extension of

time for joint measurement before the Tribunal no issue of costs was raised. It

Arb. Appeal 8 of 2009 Indian Oil Corporation vs. Iranian Offshore Engineering & Construction Company Page 5 Of 6 is only subsequently that IOECC made an application for sharing of costs.

7. I consider that the Tribunal exceeded its jurisdiction in ordering IOC to

share the costs of collection of evidence. This evidence could be the basis of

all claims of respondent. It is the responsibility of respondent to produce

evidence in support of its claim. It is not the responsibility of IOC to meet the

expenses of the evidence of IOECC.

8. I, therefore, allow this appeal. The impugned order passed by the

Arbitral Tribunal regarding sharing of costs by IOC or treating the costs as

costs of arbitral proceedings is hereby set aside.

9. With above order, the appeal stand disposed of.

September 17, 2009                                  SHIV NARAYAN DHINGRA J.
rd

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